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Ch01 (Compatibility Mode)
Ch01 (Compatibility Mode)
LECTURE 1:
INTRODUCTION
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What is Econometrics?
Econometrics literally means economic
measurement
It is the quantitative measurement and analysis
of actual economic and business phenomena
and so involves:
economic theory
Statistics
Math
observation/data collection
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Example
Consider the general and purely theoretical
relationship:
Q = f(P, Ps, Yd)
(1.1)
(1.2)
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Example
Return to the example from before:
Q = f(P, Ps, Yd)
(1.1)
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(1.3)
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Figure 1.1
Graphical Representation of the
Coefficients of the Regression Line
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Measurement error
(1.7)
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Why deterministic?
Indicates the value of Y that is determined by a given value of X
(which is assumed to be non-stochastic)
Alternatively, the det. comp. can be thought of as the
expected value of Y given Xnamely E(Y|X)i.e. the
mean (or average) value of the Ys associated with a
particular value of X
This is also denoted the conditional expectation (that is,
expectation of Y conditional on X)
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(1.10)
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Indexing Conventions
Subscript i for data on individuals (so called
cross section data)
Subscript t for time series data (e.g., series of
years, months, or daysdaily exchange rates, for
example )
Subscript it when we have both (for example,
panel data)
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Yi = 0 + 1 X i
(1.16)
The signs on top of the estimates are denoted hat, so that we have
Y-hat, for example
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Figure 1.3
True and Estimated Regression Lines
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(1.23)
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Figure 1.4
A Weight-Guessing Equation
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Slope coefficient
Dependent variable
Multivariate regression
model
Independent (or
explanatory) variable(s)
Causality
Stochastic error term
Linear
Expected value
Residual
Time series
Cross-sectional data set
Intercept term
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